Gold Fields Limited · JSE:GFI
Gold Fields — Australian International Mine Management Conference 2016
37 slides from Gold Fields's conference presentation, Aug 22, 2016
Slide 1: Can the Gold Industry Avoid the Sins of the Past?
AUSTRALIAN INTERNATIONAL MINE MANAGEMENT CONFERENCE 22 AUGUST 2016 CAN THE GOLD INDUSTRY AVOID THE SINS OF THE PAST? NICK HOLLAND CEO GOLD FIELDS
Slide 2: Message of the Presentation
To come to our conclusions, we have analysed MESSAGE OF THE PRESENTATION financial and operating trends between 2012 and 2015 of a sample of the largest global gold producers to form an industry proxy. In 2012 I said that the industry needed to change the way it operated. COMPANIES INCLUDE: The fall
Slide 3: Messages from the Melbourne Mining Club in 2012
MESSAGES FROM THE MELBOURNE MINING CLUB IN 2012 2
Slide 4: 2012 Message
2012 MESSAGE UP UNTIL 2012, THE INDUSTRY HAD FAILED TO WHEN I PRESENTED AT THE MELBOURNE MINING OPTIMISE CAPITAL: CLUB IN 2012, I SAID THAT THE INDUSTRY WAS FAILING ITS SHAREHOLDERS IN KEY AREAS: METRIC PASS/FAIL Capex/oz 10-year M&A spend/oz 10- BUT, production had Volume growth CAGR (to 2012) of y
Slide 5: Parting Thoughts from 2012
PARTING THOUGHTS FROM 2012 CONCLUDING COMMENTS FROM 2012 It’s not about ounces for ounces’ sake. The focus had to shift from ounces in the ground and level of production to free cash flow The Industry had to adopt an all encompassing cost measure Mining companies needed to optimise their mining prac
Slide 6: What Has Happened Since 2012?
WHAT HAS HAPPENED SINCE 2012? 5
Slide 7: Gold Tanked, Gold Equities Lost Significant Value
MACROS TURNED… GOLD PRICE GOLD TANKED 2 000 US$/oz 1 800 1 600 1 400 1 200 1 000 800 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 May-11 May-12 May-13 May-14 May-15 Sourc
Slide 8: Investors Fled: ETF Holdings vs. Gold Price
ETF HOLDINGS VS. GOLD PRICE INVESTORS FLED Moz US$/oz 90 2 000 80 1 800 70 1 600 60 1 400 1 200 50 1 000 40 800 30 600 20 400 10 200 0 0 Jan-11 Jul-11 Jul-12 Mar-11 Jan-12 Mar-12 Jan-13 Jul-13 Mar-13 Jan-14 Jul-14 Mar-14 Jan-15 Jul-15 Mar-15 Sep-11 Nov-11 Sep-12 Nov-12 Sep-13 Nov-13 Sep-14 Nov-14 Se
Slide 9: Production Growth Slowed
PRODUCTION GROWTH SLOWED PRODUCTION FROM THE TOP 11 PRODUCERS 34 000 koz 32 000 30 000 28 000 26 000 24 000 22 000 20 000 2011 2012 2013 2014 2015 Source: Company Reports 5-YEAR PRODUCTION CAGR Marginal increase in production Lower production from the blue 25% from our sample of producers in chips h
Slide 10: But the Producers Reacted
BUT THE PRODUCERS REACTED VAST IMPROVEMENT IN SIGNIFICANT REDUCTION IN EXPLORATION SPEND HAS BALANCE SHEET REPORTED COSTS CAPEX MORE THAN HALVED IN 2015 DELEVERAGING IS FIRMLY COMPARED TO 2012 UNDERWAY • AISC 22% lower in 2015 than in • Both stay-in-business (SIB) and 2012. Three year CAGR of – 8% p
Slide 11: Reported AISC and AIC Have Come Down
REPORTED AISC AND AIC HAVE COME DOWN INDUSTRY AISC AND AIC TRENDS US$/oz 1 600 1 490 In 2013, the World Gold 1 395 Council introduced the All-in 1 400 Sustaining Cost (AISC) measure to show all costs associated with producing an 1 200 1 115 1 067 1 087 ounce of gold 1 000 949 959 873 800 600 On the
Slide 12: Currencies and Oil Have Been Major Tailwinds
CURRENCIES AND OIL HAVE BEEN MAJOR TAILWINDS CURRENCIES ARE VOLATILE A$/US$ ; C$/US$ 0,14 1,20 0,12 1,10 0,10 1,00 0,90 0,08 0,80 0,06 US$/ZAR 0,70 0,04 0,60 50% - 60% OF PRODUCTION IS IN LOCAL 0,02 0,50 CURRENCIES 0,00 0,40 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Mar-12 Mar-13 Mar-1
Slide 13: History Shows That Currencies Revert
0,4 0,5 0,6 0,7 0,8 0,9 1,0 1,1 1,2 Jan-00 Jul-00 AUD/USD Jan-01 Jul-01 Jan-02 Source: Bloomberg Jul-02 direction Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 History shows that currencies are Jan-09 volatile and do not only move in one Jul-09 Jan-10 Jul-10 Jan
Slide 14: Capex Has Fallen Dramatically
CAPEX HAS FALLEN DRAMATICALLY Capital expenditure has been In the charts below, we illustrate Of concern is the notable Was the industry really that one of the ‘low hanging fruits’ the extremity of these cuts decrease in Stay In Business poor at allocating capital or targeted by gold miners in their
Slide 15: Production Growth Was Put on the Back Burner
PRODUCTION GROWTH WAS PUT ON THE BACK BURNER • New projects have been deferred or cancelled due to an uptick in opposition from host communities and environmental authorities as well as financial constraints and failing to meet internal hurdle rates • Possible outcome: JVs on new projects to spread
Slide 16: What If We Normalise for Currency, Oil and SIB Capex?
SO, WHAT IF WE NORMALISE FOR CURRENCY, OIL AND SIB CAPEX? We have normalised for currency, Combined impact of these three Some capital has potentially been oil and SIB capex by using the variables on AISC: misallocated between sustaining previous three-year average for 2013: US$28/oz capital and pro
Slide 17: What Does History Tell Us About Periods of Currency Weakness?
WHAT DOES HISTORY TELL US ABOUT PERIODS OF CURRENCY WEAKNESS? PERIODS OF CURRENCY WEAKNESS HAVE HISTORICALLY LED TO CHANGE IN ZAR VS. CPI INFLATION IN THE LOCAL ECONOMY 40% 0% 30% 4% 20% 10% 8% 0% -10% 12% -20% 16% -30% A weaker trade-weighted There is a lag of roughly 2 -40% 20% 80 82 84 86 88 90 9
Slide 18: Companies Have Been Spending Less on Exploration
COMPANIES HAVE BEEN SPENDING LESS ON EXPLORATION Exploration budgets have The bulk of exploration is Greenfields exploration If this continues, what been slashed focused on brownfields has all but dried up does this mean for the projects and near-mine industry in five years’ development time? TOTAL
Slide 19: And Not Focusing on Reserve Replacement
AND NOT FOCUSING ON RESERVE REPLACEMENT Gold companies have not As a result of Acquisitions of in-production been spending enough to underspending and lower ounces is in vogue: to fill the replace reserves, never gold price, reserve life has impending production gap mind grow them fallen from 24 yea
Slide 20: Apparent High-Grading Has Helped Costs
APPARENT HIGH-GRADING HAS HELPED COSTS HEAD GRADE VS. RESERVE GRADE 2,50 g/t US$/oz 1800 1600 2,00 1400 1200 1,50 1000 800 1,00 600 0,50 400 200 WE HAVE CONSISTENTLY THIS GRADE INCREASE 0,00 0 MINED ABOVE RESERVE HAS FAVOURABLY 2011 2012 2013 2014 2015 GRADE OVER THE PAST IMPACTED AISC WHEN Differen
Slide 21: Financial Metrics Have Started to Improve
FINANCIAL METRICS HAVE STARTED TO IMPROVE As a result of cost saving However, without a continued How much of these cost savings initiatives and currency and oil pick up in the gold price, we are due to exogenous factors? tailwinds, there has been a question the sustainability of this reversal in Ne
Slide 22: Balance Sheets Have Strengthened
STARTING TO ADDRESS THE DEBT POSITION BALANCE SHEETS HAVE STRENGTHENED… 35 US$bn 50% 30 40% 25 20 30% 15 20% Balance sheets have strengthened but producers have been 10 shielded by low interest rates 5 10% 0 0% The gold industry has been hindered by high levels of debt, with 2012 2013 2014 2015 Net
Slide 23: Have Shareholders Benefited from Improved Capital Discipline?
HAVE SHAREHOLDERS BENEFITED FROM IMPROVED CAPITAL Gold companies have historically used script to fund Gold companies need to acquisitions or growth projects start focusing on per share DISCIPLINE? • Production/share three year CAGR: -1,3% metrics to measure • EBITDA/share three year CAGR: -15,4% pe
Slide 24: The Gold Sector Has Been a Poor Dividend Payer
THE GOLD SECTOR HAS BEEN A POOR DIVIDEND PAYER DIVIDEND YIELDS HAVE BEEN UNATTRACTIVE 3 500 US$m 2,00% Gold producers have been notoriously poor dividend 1,75% 3 000 payers 1,50% 2 500 1,25% 2 000 Dividends have generally been linked to earnings and as such 1,00% have been insignificant. Do gold 1 5
Slide 25: Revisiting the Parting Thoughts
REVISITING THE PARTING THOUGHTS CONCLUDING COMMENTS FROM 2012 PASS/FAIL It’s not about ounces for ounces’ sake. The focus had to shift from ounces in the ground and level of production to free cash flow The Industry had to adopt an all encompassing cost measure Mining companies needed to optimise th
Slide 26: Where to From Here?
WHERE TO FROM HERE? 25
Slide 27: 2016 Year to Date
2016 YEAR TO DATE GOLD HAS HAD ITS STRONGEST YEAR IN DECADES, UP 25% YEAR TO DATE GOLD EQUITY INDICES HAVE RISEN BY OVER 100% ON AVERAGE SINCE THE BEGINNING OF 2016 THE GOLD PRICE RECOVERY HAS BEEN UNEXPECTED GOLD EQUITIES HAVE RECOUPED SOME LOSSES 300 1 400 250 1 300 200 1 200 150 1 100 US$/oz 1 00
Slide 28: ETFs and Assets Under Management Have Followed
ETFs AND ASSETS UNDER MANAGEMENT HAVE FOLLOWED SINCE THE BEGINNING OF 2016, ETF HOLDINGS HAVE INCREASED BY 545 TONNES (17.5MOZ) TO 2005 TONNES (64.5MOZ) COMBINED AUM AT THE 9 BIGGEST GLOBAL GOLD FUNDS HAVE INCREASED BY US$8.2BN YEAR TO DATE STEADY INFLOWS INTO ETFS ASSETS UNDER MANAGEMENT OF GOLD FU
Slide 29: The Euphoria Is Back
THE EUPHORIA IS BACK The rise in gold price in 2016 has resulted in a step up in capital raisings and M&A activity: US$2.9bn in Equity Capital Market (ECM) deals year to date Some of the bigger ECM deals in 2016 include: Gold Fields US$150m, Kinross US$288m, Franco Nevada US$920m, Silver Wheaton
Slide 30: It's Back to Growth!
IT’S BACK TO GROWTH! ● “New approach needed to prevent gold miners’ sins of the past” Miningweekly.com, 10 June 2016 ● “Australia halfway down the mining investment cliff – National Australia Bank” Miningweekly.com, 13 June 2016 ● “Australia exploration spend falls for eighth straight quarter” Minin
Slide 31: Fundamentals Are Supportive
FUNDAMENTALS ARE SUPPORTIVE GOLD STILL AN IMPORTANT ASSET CLASS 2000 0,9% 1800 US$bn 0,8% 1600 0,7% 1400 0,6% 1200 0,5% 1000 0,4% 800 0,3% 600 400 0,2% 200 0,1% Gold remains an important Growth in primary supply is 0 0,0% asset class constrained 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 • US
Slide 32: Fundamentals Are Supportive
FUNDAMENTALS ARE SUPPORTIVE JEWELLERY, BARS & COINS DEMAND 100% 80% 60% 40% 20% Demand Gold price expectations 0% • ETFs: Outflows have started to reverse since • Consensus estimate: 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 significant drop that began mid-2013 US$1,306/oz India China Rest o
Slide 33: What Do Investors Want?
WHAT DO INVESTORS WANT? What are key attributes for you to invest in a gold company? ● Focus on per share metrics. Companies need to grow value without diluting shareholders ● Risk management, capital allocation and operational delivery are important Is growth in production important? ● Yes, if it r
Slide 34: What Do Investors Want? (Continued)
WHAT DO INVESTORS WANT? (CONTINUED) Have gold companies been underspending capex? ● Gold companies have been poor at allocating capital ● There is a suspicion that companies might have been spending too little sustaining capex in recent years What is the optimal size of a gold company? ● There is no
Slide 35: Parting Thoughts
PARTING THOUGHTS ● Gold producers need to embrace innovation and technology ̵ Grades are decreasing, mining depths are increasing and mineralogy is becoming more complex ̵ Gold miners will need to get good at mining lower grade, more complex orebodies profitably ● Collaboration and the use of Joint
Slide 36: Parting Thoughts (Continued)
PARTING THOUGHTS (CONTINUED) ● Assuming long-term estimates hold true, the gold industry will contract ̵ We have made changes in response to the fall in price but have been helped by currency weakness and a falling oil price ● Has the gold price recovery come too soon? Does there still need to be so
Slide 37: Investor Relations and Media Contacts
AUSTRALIAN INTERNATIONAL MINE MANAGEMENT CONFERENCE 22AUGUST 2016 CAN THE GOLD INDUSTRY AVOID THE SINS OF THE PAST? NICK HOLLAND CEO GOLD FIELDS INVESTOR RELATIONS CONTACTS MEDIA RELATIONS CONTACT Avishkar Nagaser Thomas Mengel Sven Lunsche Tel: +27 11 562 9775 Tel: +27 11 562 9849 Tel: +27 11 562 9
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